Govt puts $15m in the pot for second NZ-Aust-US cable

UPDATE: "It's great news that the government is making a $15 million contribution," former Pacific Fibre CEO Mark Rushworth tells NBR ONLINE, following news the Crown is willing to buy a $15 million achor customer contact on a new Australia-NZ-US cable.

"But that would also suggest the government doesn't believe that the new Telecom-Vodafone-Telstra Trans-Tasman cable will provide adequate market competition?"

In June, joint venture partners Telecom, Vodafone and Telstra opened bids for a Trans-Tasman cable, which they say is fully funded, and will be operational by 2015.

The partners have yet to reveal their respective shareholdings. Critics have fretted that Telecom already has a 50% share in NZ's only major outside broadband link to the outside world, the Southern Cross Cable, so competition could be limited.

Yes, it's that Reannz $15m again
An industry insider offered the cynical commentary that the $15 million had been offered by successive governments since 2005. Ms Adams was trying to distract from the "axe the copper tax" controversy.

NBR inquired, and ICT Miinister Amy Adams confirmed the $15 million for a new cable operator would be in the form of an anchor customer contract from Crown company Reannz* - which is indeed the offer first put on the table by Labour eight years ago in a bid to jump start a proposed Kordia cable, and later by National to try and give Kordia a leg up.

Could it be third-time lucky, and the $15 million actually get spent?

Or does it need to be more like $150 million to kickstart an international cable (and why not given $1.35 billon is being spent building out domestic fibre)?

In another development, Ms Adams confirmed Noumea-based Hawaiki would be eligible for the $15 million anchor customer contract.

* Crown company Reannz (Research and Education Advanced Network New Zealand), operates the $100 million Karen network that connects research organisations and universities around New Zealand, and provides them with international bandwidth.

EARLIER: Communications and Information Technology Minister Amy Adams is calling for expressions of interest from companies who are considering building a new international telecommunications cable between New Zealand, Australia and the United States.

“To ensure we have sufficient international capacity in the medium to long term, the Government is making a $15 million contribution available, and would commit to an anchor tenancy on a new cable for research and education purposes,” Ms Adams says.

The $15 million will help, but won't be transformative. Pacific Fibre, which only raised half the $400 million it needed for a Sydney-Auckland-LA cable, won an equivalent government grant via winning a bandwidth contract from Crown education and research network operator REANNZ, which was only open to new cable operators (a provision designed to spur competition against New Zealand's only major broadband connection to the outside world, the 50% Telecom-owned, Bermuda-incorporated Southern Cross Cable).

Pacific Fibre also lined-up anchor customer contracts with Vodafone NZ, Australia's iiNet and CallPlus, although in the end it wasn't enough to get it over the line. CEO Rod Drury said after it folded that only a public-private partnership could fund a second cable to the US (Mr Drury favours an at-cost cable, which would operate at no profit for the greater good of businesses, exporters and NZ as a whole).

And critics will note $15 million is peanuts compared to the $1.35 billion the Crown has put toward the domestic Ultrafast Broadband (UFB) rollout. Critics say rolling fibre around the country, while leaving the Southern Cross Cable's commercial monopoly in place could cause a bottleneck as the UFB spurs much more intensive internet use.

Hawaiki in the running
NBR has asked Ms Adams if new cable contender Hawaiki - which is seeking NZ investment and has a local subsidiary registered but is based in Noumea - would qualify for the Crown's $15 million contract [UPDATE: it can, the minister tells NBR.]

Ms Adams says the cable that wins the government's money would need to meet the requirements of the research, education and innovation communities, as well as normal commercial traffic.

“In order to take part in global research projects, our research and education communities need dedicated capacity that can handle huge data volumes, and provide high levels of reliability.

“International, collaborative projects are characterised by intermittent, high-throughput, multi-terabit data flows that may last for days.

“Building a new cable will further increase the resilience of New Zealand’s international telecommunications links and also introduce more competition on the route, as well as providing additional capacity.”

The existing Southern Cross loop is expected to continue to meet New Zealand’s requirements until at least 2020.

A call for expressions of interest in building a new trans-Tasman and trans-Pacific cable will be published later today on the government electronic tenders website at www.gets.govt.nz

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6 Comments & Questions

What is the logic of selling Government assets on one hand and funding private enterprise on the other?? - selling good income earning assets and replacing with providing risk capital to the private sector ( potentially offshore private sector )

Although $185 million would be a more realistic figure to get things moving.

And as has been noted online, $15 million is only half the amount given to Rio Tinto to subsidise Tiwai Smelter power - and that's a sunset operation. A second international cable would help all NZ companies.

Where the hell are Government going with this? First the government c**ps all over the fully wholesale option of the Kordia cable option that they would have owned and controlled 100% by committing via Reannz to complete smoke and mirrors from NZ Fibre. Then rejecting Chinese finance options.
They plainly don’t like the semi monopoly position of Telecom and Voda Cable that developed.
So they wave $15 mill in a wild hope that it will encourage competition.
Get a plan and stick to it!

Why do certain posters drag up Tiwai when subsidy over three years will be repaid due to PAYE intake...Millions were spent by NZ taxpayer in Auks for Rugby world Cup and millions already spent on America/Auckland Cup..Other regions are getting fed up with the Auckland push.......
And in South Island provinces are still struggling with dialup..